Most high-tech goods tend to get cheaper as they are manufactured at increasing volumes, but only up to a point. The electric vehicle industry is growing, but its sudden and dramatic early growth means that matching earlier savings will be difficult, and the law of diminishing returns has set in as shown by the flattening curves. 

Looking at the industry trends, it’s easy to notice that when it comes to the price per kWh of power, price reduction curves are going to flatten. It’s not a question of whether battery costs are going to stop declining, it’s a question of when. The reductions are no longer as dramatic as they were 10 years ago and, each year, they get smaller by such small increments as to be almost insignificant. 

Another problem affecting this curve is the technology. According to The Times, “A major technological breakthrough will be required to make electric cars much, much cheaper.” Normally, improvements in technology contribute to a lower price. But this takes time and improvements to the batteries to make them more cost effective have not been dramatic enough to affect the price curve.  

Interestingly, there has been a recent trend to revive one of the older battery types—the LFP (lithium-iron phosphate)—in vehicles that are very cost sensitive. These batteries display lower energy density but have the advantage of a good life cycle and not being badly affected by higher temperatures (which makes a huge difference in geographical locations such as India). These batteries are also seen as more socially acceptable as they contain fewer “conflict minerals.” 

Batteries are hard to improve upon quickly. What’s more, it will take time for innovations in battery technology to make it into viable products and then into vehicles. Therefore, it’s important to keep redesigning engines at the same time to make them more efficient, and to extend the battery life in smaller increments while working on the “major breakthroughs.” 

This blog post is an excerpt from Driving EVs to Profitability. To read more, click to access the whitepaper download.

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